Timing and conditions for a discharge from bankruptcy

The Bankruptcy and Insolvency Act (BIA) provides for several different situations for which a bankrupt can be discharged from his or her bankruptcy, the basic principle being that after a certain period of time, the bankrupt earns the right to be discharged from his legal obligations to pay his debts and resume normal life. There are exceptions and variables to this principle.

In the case of a first bankruptcy, a bankrupt will be automatically discharged in 9 months if he has no surplus income payments to make to the insolvency trustee. 21 months if surplus income payments are made. The discharge in both cases is automatic unless an objection is filed in court.

In the case of a second bankruptcy, the rules are similar but the timing is longer. 24 months if no surplus income payments are made and 36 months if they are.

The question as to how much, if any, surplus income payments are required, is decided by the insolvency trustee.

Furthermore, in the case of a bankruptcy involving personal income tax debt, different rules apply. Subsection 172.1(1) of the BIA states that in the case of a bankrupt who has $200,000 or more of personal income tax debt which represents 75% or more of his total unsecured claims, an application to be discharged must be heard by a court. The discharge is not automatic.

The court can then accept, refuse, suspend or grant a conditional discharge. The factors to be considered by the court are found in subsection 172.1(4) BIA.

These rules only apply to personal income tax owed and do not include GST/QST debt.
Sirois & Cohen